Warning, trolls ahead

Five years ago, the head of patents at a major German auto manufacturer was convinced they were going to be the next victim of patent trolls – those predatory non-performing entities (NPEs) that aim to squeeze as much money out of companies as possible by enforcing dubious property rights. His company had just gone head-to-head with trolls before the US courts and had come out more than a little worse for wear. With carmakers increasingly building mobile telecommunications into their cars, the patent boss immediately set about preparing his company for an onslaught in Europe.

For many years, European manufacturers were terrified by the prospect that infringing the patent of a tiny chip could potentially bring the production of an entire product line to a standstill. But the onslaught never came. At least, not for car manufacturers.

In autumn 2017, however, things changed. The first major patent proceedings over wireless communications were initiated against two auto manufacturers in Germany. But to the industry’s surprise, the plaintiff was not a loathsome patent troll but a reputable chip manufacturer. In September and October 2017, Broadcom filed 13 patent infringement suits in the Regional Court of Mannheim against Audi and VW.

The seven patents in question concern chips for wireless communications and include those for end devices in cars with Wifi and Bluetooth and were registered by Broadcom and Avago. Since 2015 the two companies have operated under the umbrella of Broadcom.

For many months, there were no details about the litigation. The auto industry is notoriously secretive, preferring to solve problems behind closed doors. Only rarely have cases gone to court, as in the laborious litigation over electronically adjustable wing mirrors. But more and more details in the Broadcom suit against Audi and VW are now coming to light. Everybody is interested in the arrival of connected cars. New players such as chip manufacturers, mobile phone companies and NPEs are entering the market. Carmakers are now competing directly with companies such as Tesla and Google. The auto industry is changing – and so are the litigation strategies.

BMW caused a stir in December when it signed a licence agreement with Avinci for its mobile telecommunications portfolio. The US patent pool offers patent licences for the Internet of Things, above all for the 2G, 3G and 4G standards. BMW and its suppliers can use the patents for all vehicles, regardless of the price and number of installed telematics units. According to a US magazine, Avanci’s licensing terms mean that BMW pays between US$3 and US$15 per car according to the type of standard used.

In total, twelve mobile telecommunications companies have pooled standard-essential patents at Avanci, including such renowned companies as Ericsson, Qualcomm, Sony, ZTE and Vodafone. BMW is their first major customer. According to Avanci, more will follow.

Mobile device

Whether drivers are using wireless technology inside the car or the car is communicating with its surroundings, cars themselves have now become mobile devices. And with the advent of self-driving cars, this trend is set to continue. The importance of mobile telecommunications technology and chips with vast storage capacity is steadily growing.

Carmakers and their suppliers, however, are ill-prepared for this. They seldom initiate patent proceedings and they usually purchase the mobile technology they need. Patent experts often point out that carmakers rarely build up their own patent portfolios as a means of fending off lawsuits.

But the closer the self-driving car gets to reality, claims one source involved in the litigation, the greedier the patent owners are becoming, especially those of semiconductors, telecommunications and mobile technology patents. “Over the past 20 years, with consumer goods, we’ve seen the technology become increasingly complex while the products get cheaper, whereas car prices have remained the same.” Everyone knows car manufacturers enjoy high margins. Now the patent owners want a share.

An entire industry in the courtroom

The Broadcom case is pointing towards how patent litigation is likely to develop. In general, a suit is brought against the manufacturer of the end product, as they have the greatest market clout, the highest margin and can provide the best leverage on the other participants in the production chain. A car manufacturer usually purchases entire communications modules from their suppliers. These suppliers then procure the various components, such as chips. In the Broadcom case, it is not the cars that infringe the patent, but the chips installed in the cars and supplied by the semiconductor manufacturers.

So it is not only Audi and VW in the courtroom but also a number of their suppliers and component-manufacturers. The total number of parties involved in the proceedings is unknown. What is sure, however, is that the supplier Becker Automotive Systems, a subsidiary of Harman Becker, has joined the dispute and has brought its own briefs into the proceedings. Texas Instruments is also said to have joined the dispute. Other participants – whether voluntarily or as observers – are said to include Conti Temec (a subsidiary of Continental), Robert Bosch, the chip manufacturers Marvell Technologies and Nvidia Corporation, as well as the LED manufacturer Nichia. Each has retained their own law firm (see Crowded Courtroom). The defendants have already formed a joint defence group.

Audi, VW and their co-litigants are currently preparing their pleas. Together with Harman Becker, they have also filed nullity suits against all seven of Broadcom/Avago’s patents in the German Patent Court. The first showdown will take place on 12th and 29th June respectively, when the Regional Court at Mannheim will hear the first two cases (case number 2 O 166/17 and 2 O 167/17).

Many suits will follow

The effort put into these initial proceedings against the auto industry are reminiscent of the first major patent wars among the mobile telecommunications companies themselves. Many experts believe the auto industry will see a plethora of such cases in the next few years, with NPEs currently preparing to file their first lawsuits in Germany. The industry is wondering what Nokia will do. The Finnish company boasts one of the largest portfolios in the market and is renowned for enforcing its rights in court if necessary. According to JUVE’s sources, Nokia is still taking a moderate approach and, for the time being, is focusing more on negotiations with the auto industry.

But once the licences have been taken, the first major battles have been fought and calm has been restored to the auto industry, it is unlikely to last. Licensing agreements in the mobile telecommunications sector typically expire after five years, after which they need to be renegotiated or, if the parties cannot agree on an appropriate licence fee, they go to court.

One day the UPC could be a reality – and the auto industry is not its greatest fan. In fact, the Europe-wide injunctions are a thorn in its side. NPEs, on the other hand, have already fallen in love with the UPC. Escaping the patent troll will be no mean feat for carmakers.

Crowded Courtroom

In addition to the main parties, a number of co-litigants and their lawyers are involved in the Broadcom case

For Counsel Broadcom/Avago
Grünecker (Munich): Bernd Allekotte and patent attorneys
Klaka (Düsseldorf): Olaf Giebe

Counsel Audi/VW
Kather Augenstein (Düsseldorf): Peter Kather, Alexander Haertel (both lead), Christof Augenstein, Miriam Kiefer, Christopher Weber; associates: Jonas Block, Sören Dahm, Carina Höfer, Nina Belbl, Henrike Landgraf
Viering Jentschura & Partner (Munich): Eric-Michael Dokter

Harman Becker (co-litigant)
DLA Piper (Munich, Cologne): Markus Gampp, Philipp Cepl

Texas Instruments (co-litigant)
Hogan Lovells (Munich): Steffen Steininger; associate: Marion Fischer
Prinz & Partner (Munich): Bernhard Pfleiderer (patent attorney)

Conti Temec (co-litigant)
Hoyng ROKH Monegier (Munich): Klaus Haft

Regional Court of Mannheim
2nd Civil Chamber: Holger Kircher (presiding judge)
7th Civil Chamber: Patrizia Rombach (presiding judge)